BMI View : Nissan's newly unveiled Vietnam assembly plant, which will assemble its Sunny model, is a common route we observe among local automakers, who avoid production from scratch due to the lack of localisation in Vietnam's auto market. The firm has also opened its 12 th dealership recently and we expect sales of the Sunny model to do well on the back of strong consumer demand, which is propelling the passenger car market.
Nissan Motor, together with its partner Tan Chong Motor (TCM) has opened a new assembly plant in Danang City and launched Nissan's best-selling sedan globally, the Nissan Sunny. The plant carries a total investment of US$40mn and has a capacity of 6,500 cars. The factory will initially focus on assembling the Sunny for domestic sale and the firm intends to assemble around 2,000 cars in the first year. The model has already received positive feedback from local dealers, which means it is well placed to take advantage of supportive demand conditions.
Assembly Route Preferred Due To Lack Of Localisation
Assembly plant investments are popular in Vietnam compared with auto production from scratch, given the lack of localisation in the country's auto industry. There are barely 200 suppliers in the industry and most of them just produce simple component parts, resulting in automakers needing to import a lot of the parts necessary for car manufacturing.
While the government has taken steps to improve the industry's prospects on the demand side, we believe more production-oriented reforms need to be enacted in order to attract more foreign direct investment (FDI) into the sector. Recent FDI inflows into Vietnam have remained robust, despite the challenging economic environment, which indicates to us that investors are not deterred by the short-term uncertainties facing the country. Indeed, we see strong potential for encouraging long-term investment in the auto sector, if the government introduces the necessary incentives and tax reforms.
BMI is bullish on auto production growth and we forecast growth to average 6.0% annually, over the 2013-2017 period, to reach 54,000 units by 2017. Although the growth rates seem quite impressive, the small absolute number of units produced is a sobering reminder of the low utilisation of Vietnam's strengths of cheap labour and an abundance of raw materials.
|Performing Below Potential|
|Vietnam - Domestic Auto Production|
Strong Car Sales Outlook Will Benefit Nissan
On the other hand, the current sales outlook is bright, in part due to the central bank's interest rate cuts, which have lowered lending rates for consumers and businesses, and the cut in car registration fees recently from 15% to 10% ( see 'Recovery On The Back Of Strong Car Sales', May 17), which has boosted consumer demand. Indeed, total sales from all members of the Vietnam Automobile Manufacturers Association (VAMA) rose 44% year-on-year (y-o-y) in May, to 8,210 units.
Car sales have been outperforming commercial vehicle sales, with 5M13 VAMA members' sales of passenger cars, SUVs and MPVs increasing 35.7% y-o-y, to 19,866 units. This will also prove positive for the launch of Nissan's 12 th dealership, which involved a US$3.0mn investment and is equipped with 27 working bays and three paint shops.